After soaring 180% and reaching a historically high valuation, Broadcom's earnings report tonight may bring about a "sell the news" trade

Despite the surge in Broadcom's stock price driven by the artificial intelligence boom, making it a key supplier for Google's business, the historically high valuation is causing market sentiment to become cautious as the release of earnings reports approaches on Thursday.

Broadcom's stock has risen over 180% since hitting a low on April 4, making it the tenth-best performing component of the S&P 500 during the same period, and it reached an all-time high at Wednesday's close. However, this strong rebound driven by AI has pushed the company's valuation to 42 times expected earnings, well above its ten-year average of 17 times. Pre-market trading saw Broadcom drop 1.38%.

Currently, the market is not only focused on its single-quarter performance, but is also concerned that even if the performance exceeds expectations, the stock price, having fully reflected optimistic expectations, may trigger a "sell the news" scenario. Institutional investors like Huntington National Bank have warned that the current pricing of the stock may have "prepared for disappointment," especially in the context of Oracle's pre-market plunge due to a surge in capital expenditures, which is lowering the margin for error for infrastructure stocks.

Investors will closely monitor Broadcom CEO Hock Tan's statements during the conference call, looking for growth drivers beyond the Google ecosystem. The market generally expects that whether Hock Tan can deliver another surprise will be key to determining if the stock price can initiate the next round of increases.

Concerns Over Overheated Valuation Triggering a Pullback

Broadcom has been one of the hottest stocks in the market this year, primarily due to investors' fervent enthusiasm for artificial intelligence and related hardware. However, this surge has also made the stock more expensive than ever. Currently, Broadcom's price-to-earnings ratio is significantly above its historical average, and among the "seven giants," its valuation is second only to Tesla.

Huntington National Bank holds shares in Broadcom, and the bank's global growth equity strategy manager, Peter Sorrentino, stated:

"Our concern is that this is somewhat preparing for disappointment."

He believes that investors are currently "a bit too aggressive" and revealed that his firm has not increased its position in Broadcom during the stock's price rise over the past six months.

Gabelli Funds analyst Ryuta Makino also expressed a similar cautious viewpoint. He believes that regardless of the report the company releases, Broadcom's astonishing market valuation may have reached a critical point, and even explosive earnings data could become an opportunity for market sell-offs. "Everyone is bullish, and perhaps some will sell to take profits," Makino added.

Earnings Expectations and the Google Effect

According to data compiled by Bloomberg, analysts expect Broadcom's adjusted earnings per share for the fourth fiscal quarter to rise from $1.42 in the same period last year to $1.87; revenue is expected to increase from $14.1 billion to approximately $17.5 billion. Of this, revenue from the AI segment is expected to reach approximately $6.2 billion, a year-on-year increase of about 68%. **

This optimistic sentiment is mainly based on the core role that the custom chips manufactured by Broadcom for clients like Google play in the construction of AI data centers. Janus Henderson Investors holds a positive view on this, with technology research analyst Shaon Baqui stating:

"Given the recent performance, expectations here are clearly high, but the reasons are sufficient. They are closely tied to the Google ecosystem, and we have all seen the recent success of Gemini 3 and the achievements made by Google."

According to previous reports from Wall Street News, JP Morgan predicts that driven by the continued ramp-up of Google TPU and new orders from Meta, Broadcom's AI revenue for fiscal year 2026 is expected to exceed $50 billion. In the short term, strong demand for AI networks and custom ASICs will drive Broadcom's revenue for the October quarter and guidance for the January quarter to exceed market consensus. Additionally, the VMware synergy is accelerating and jointly supporting Broadcom's optimistic outlook.

Nevertheless, this has also raised market concerns about customer concentration. Melius analyst Ben Reitzes pointed out in a report on December 8 that while the strong performance of TPU (Tensor Processing Unit) orders should boost Broadcom's expectations for next year, the market still prefers to see Broadcom with a diversified customer base among its seven "hyperscale" opportunities in the long term.

"In Hock We Trust" and Market Games

In addition to financial numbers, management's guidance will be the highlight of tonight's event. Hock Tan enjoys a high reputation in the investor community, Shaon Baqui describes the market as adopting an "in Hock we trust" attitude, as he "brings new surprises like magic every quarter."

In the last quarter, Broadcom announced a new customer order totaling over $10 billion, which led to a 9.4% surge in its stock price the day after the report. If another new customer is announced tonight, it will help alleviate analysts' and investors' concerns about the heavy reliance on a few hyperscale companies' spending.

Meanwhile, the market is also looking for signs of recovery in Broadcom's other businesses, including software, enterprise storage, broadband, and wireless communications. Although Broadcom has not struggled like Nvidia, Oracle, and AMD recently when infrastructure was sold off, Oracle's stock fell over 11% in pre-market trading on Thursday due to cloud growth forecasts missing expectations, reminding investors that volatility risks in the AI infrastructure sector still exist